United Airlines bets on international bounce

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United 777 in Hong Kong [Credit: Chintung Lee/Shutterstock.com]
United Airlines has not retired any widebody fleet types. Photo Credit: Chintung Lee/Shutterstock.com

United Airlines is betting that profit margins will recover faster on international flying than they will in the domestic market once the pandemic finally releases its grip on the airline industry. 

Speaking during the carrier's year-end 2020 earnings call Thursday, chief commercial officer Andrew Nocella predicted that during the recovery domestic seat capacity will remain well ahead of demand. But he expects international capacity to lag behind demand because so many widebodies have been pulled out of worldwide fleets. 

"That gives us a lot of confidence the world is very different on the international front than it had been," Nocella said. 

Related report: United expands leisure market new routes

Nocella said that United's profit margins on international flights had lagged behind domestic margins by two to three percentage points prior to Covid-19 but coming out of the crisis the carrier expects international margins to outperform profits for domestic service. 

He alluded to Norwegian Air, which has permanently ended transatlantic flying, and also referenced retirements by major airlines of Boeing 747s and Airbus A380s. Air France, for example, has retired its A380s during the pandemic and British Airways has retired its 747 fleet. Stateside, Delta has retired its Boeing 777 fleet and American has done away with A330s. 

United, conversely, has not retired any widebody fleet types. 

"It is easy to retire an aircraft but it's a lot harder to induct new ones to replace them," noted Nocella. By maintaining as diverse a widebody fleet as possible, United expects to be able to scale nimbly when long-haul flying returns, and in so doing, to capitalize on the revenue premiums it expects international flying to offer. 

Such a strategy could be especially suitable for United, which flew more long-haul capacity than American and Delta prior to the pandemic. According to Cirium data, United flew 10.7 million seats to regions beyond North America, the Caribbean and Central America in 2019, compared with American's 8.8 million seats and Delta's 9 million seats. That was despite the fact that United was the smallest of the Big Three airlines in terms of overall flights and seat capacity. 

During the most recent quarter, United's long-haul capacity was down 62.1% year over year. But even as the pandemic has forced United to slash international flying, the carrier has made strategic additions to its international route network, adding 10 new routes with 15 more planned for launch in 2021. United has especially touted a combined five new and planned routes to Africa and India that will be geared toward serving expat populations in the U.S. 

'The year of going through hell'

The discussion of United's bullish medium-term outlook for the international environment came as the carrier reported brutal year-end results for 2020.

Over the course of what CEO Scott Kirby described as "the year of going through hell," United recorded net losses of $7.07 billion, compared with $3 billion in net income in 2019.  The carrier's year-over-year operating revenue declined 64.5%. 

During the fourth quarter of last year, United took net losses of $1.9 billion on a year-over-year operating revenue decline of 68.7%. 

United's daily cash burn during the fourth quarter was $33 million, while core cash burn, which doesn't include items such as debt principal, severance payments and investments in recovery, was $19 million. 

The carrier anticipates similar daily cash burn in the current quarter and also expects revenues to be down a similar 65% to 70% compared with 2019. 

Despite the deep losses, United entered 2021 with $19.7 billion in liquidity, having raised $26 billion in financing during 2020. The carrier expects to maintain its year-end liquidity through the first quarter as losses are countered by $2.6 billion in federal Payroll Support Program funding. 

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